IFRS 3 Business combinations necessitate goodwill on gaining to be calculated at the date control is gained. The second gaining gives ROB a 75% holding and consequently control over PER. The simple asset of 15% will be derecognised and the 75% holding will be fully consolidated as a supplementary in the group financial statements. The goodwill will be evaluated as the cost of the 60% acquired in the year plus the fair value of the previously held interest of 15%, evaluate with the fair value of the net assets at the date of acquisition, 1 April 2010.

(b)

Working 6 Other reserves and AFS investment

IFRS 3 necessitate that the 15% simple investment be derecognised and on un-acknowledgment any gain/loss would be considered realised. The gain of $200,000 (FV of $800,000 at date of un-acknowledgment less the investment cost of $600,000) represents the group gain and will be incorporated in the consolidated reserves.

The balance on other reserves once more relates to the treatment of the investment in the parent's own accounts and the gains on the AFS investment (PER) and not applicable for the group accounts - as the PER has been fully consolidated.

Financial position

The gearing has fallen from 50% to 18% in the year due to the repayment of the loan. The repayment amounted to a significant cash outflow in the year; however the lender must have been assured that GD could afford to service and repay the loan. The interest cover is more than enough; however the issue will be whether or not GD will have enough cash to actually pay the interest. In addition, the enduring loan is to be repaid by 2011 and the entity emerges to be short of liquid funds.

The current and rapid ratios have fallen mainly due to the improved payables and the introduction of the overdraft. The quick ratio has dropped from 0.74 to 0.52 and indicates cash crisis and the fall in current ratio is to 1.03 and so GD is hazardously close to bankruptcy.

Resources are still being accumulated within 35 days which shows good credit control, or loyal customers. This however is not enough to generate sufficient liquid funds and payables are being stretched as a result, from 63 days to 80 days. This is not a good strategy at a time when there is a new market associate as suppliers may choose to switch provisions to them. In addition, GD needs to negotiate with its suppliers to reduce costs in order to recover the limits and therefore a good relationship is vital.

The increase in inventories days is consistent with the falling revenue, but GD should test for obsolescence on account from the packaging business.

Conclusion and recommendation

GD has liquidity problem, however the management organization appears to be well prearranged. Credit control appears to be a main concern and the management have made some good investments, with upward assessment in both non-current assets and held for do business investments.

The minutes of the Board meetings designate that management are receptive to change and have reacted completely by applying for long term investment prior to the existing loan being repaid and organising a meeting with suppliers to bargained better terms. GD is likely to fare enhanced in these meetings if payables have been established and to this end the funding would supported. The proposal is to put the application forward for further deliberation.